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Acquisitions
9 Months Ended
Feb. 29, 2024
Business Combinations [Abstract]  
Acquisitions

Note P – Acquisitions

 

Halo

 

On February 1, 2024, we acquired an 80% controlling interest in a newly formed joint venture with HPG for total cash consideration of $9,386, of which $679 related to a customer overpayment and was held back at closing. The remaining 20% noncontrolling interest was retained by HPG. Halo is an asset-light business with technology-enabled solutions in the outdoor cooking space with products that include HaloTM branded pizza ovens, pellet grills, griddles and other accessories. Halo is being operated as part of the Consumer Products operating segment and its operating results have been included in our consolidated statement of earnings since the date of acquisition. Pro forma results, including the acquired business since the beginning of fiscal 2023, would not be materially different than the reported results.

 

The information included herein is based on the preliminary allocation of the purchase price using estimates of the fair value and useful lives of the assets acquired. The purchase price allocation is subject to further adjustment until all pertinent information regarding the assets acquired is fully evaluated by us, including but not limited to, the fair value accounting.

 

The assets acquired and liabilities assumed were recognized at their estimated acquisition-date fair values, with goodwill representing the excess of the purchase price over the fair value of the net identifiable assets acquired. The purchase price includes the fair values of other assets that were not identifiable, not separately recognizable under accounting rules (e.g., assembled workforce) or of immaterial value. The purchase price also includes strategic and synergistic benefits (i.e., investment value) specific to us, which resulted in a purchase price in excess of the fair value of the identifiable net assets. This additional investment value resulted in goodwill which will be deductible by us for income tax purposes.

 

The assets acquired and liabilities assumed were recognized at their estimated acquisition-date fair values, with goodwill representing the excess of the purchase price over the fair value of the net identifiable assets acquired. In connection with the acquisition of Halo, we identified and valued the following intangible assets:

 

 

 

Amount

 

 

Useful Life

Category

 

(In thousands)

 

 

(Years)

Trade name

 

$

3,500

 

 

10

Product design/Know-how

 

 

800

 

 

8

Customer relationships

 

 

200

 

 

8

Total acquired identifiable intangible assets

 

$

4,500

 

 

 

 

The following table summarizes the consideration transferred and the estimated fair value assigned to the assets acquired and liabilities assumed at the acquisition date. These amounts reflect various preliminary fair value estimates and assumptions, including preliminary work performed by a third-party valuation specialist, and are subject to change within the measurement period as the valuation is finalized. The primary areas of preliminary purchase price allocation subject to change relate to the valuation of acquired tangible assets and liabilities, identification and valuation of residual goodwill and tax effects of acquired assets and assumed liabilities.

 

(In thousands)

 

Preliminary
Valuation

 

Accounts receivable

 

$

88

 

Inventories

 

 

5,511

 

Property, plant and equipment

 

 

1,732

 

Intangible assets

 

 

4,500

 

Total identifiable assets

 

 

11,831

 

Accounts payable

 

 

(7,293

)

Other accrued items

 

 

(1,099

)

Net identifiable assets

 

 

3,439

 

Goodwill

 

 

8,294

 

Net assets

 

 

11,733

 

Noncontrolling interest

 

 

(2,347

)

Total cash consideration

 

$

9,386

 

 

Level5

 

On June 2, 2022, we acquired Level5, a leading provider of drywall tools and related accessories. The total purchase price was $59,321, including $2,000 attributed to an earnout agreement with the selling shareholders, which provides for up to an additional $25,000 of cash consideration should certain earnings targets be met annually through calendar year 2024. The earnout agreement also requires continued employment of a selling shareholder during the duration of the earnout period. Accordingly, payments to this key employee, to the extent earned, will be accounted for as post-combination compensation expense. As of February 29, 2024, no amounts were accrued as compensation expense for anticipated payments under the second earnout period ending December 31, 2023 or the third earnout period ending December 31, 2024.

 

Level5 is being operated as part of the Consumer Products operating segment and its results have been included in our consolidated statements of earnings since the date of acquisition. Proforma results, including the acquired business since the beginning of fiscal 2022, would not be materially different from the reported results.

 

The assets acquired and liabilities assumed were recognized at their estimated acquisition-date fair values, with goodwill representing the excess of the purchase price over the fair value of the net identifiable assets acquired. In connection with the acquisition of Level5, we identified and valued the following intangible assets:

 

 

 

Amount

 

 

Useful Life

Category

 

(In thousands)

 

 

(Years)

Trade name

 

$

13,500

 

 

Indefinite

Customer relationships

 

 

13,300

 

 

10

Technological know-how

 

 

6,500

 

 

20

Non-compete agreement

 

 

280

 

 

3

Total acquired identifiable intangible assets

 

$

33,580

 

 

 

 

The purchase price includes the fair values of other assets that were not identifiable, not separately recognizable under accounting rules (e.g., assembled workforce) or of immaterial value. The purchase price also includes strategic and synergistic benefits (i.e., investment value) specific to us, which resulted in a purchase price in excess of the fair value of the identifiable net assets. This additional investment value resulted in goodwill which will be deductible for income tax purposes.

 

The following table summarizes the consideration paid and the final fair value assigned to the assets and liabilities assumed at the acquisition date.

 

(In thousands)

 

Preliminary
Valuation

 

 

Measurement
Period
Adjustments

 

 

Final
Valuation

 

Cash and cash equivalents

 

$

1,515

 

 

$

-

 

 

$

1,515

 

Accounts receivable

 

 

2,860

 

 

 

-

 

 

 

2,860

 

Inventories

 

 

9,161

 

 

 

-

 

 

 

9,161

 

Prepaid expenses

 

 

64

 

 

 

-

 

 

 

64

 

Property, plant and equipment

 

 

273

 

 

 

-

 

 

 

273

 

Intangible assets

 

 

33,580

 

 

 

-

 

 

 

33,580

 

Operating lease assets

 

 

377

 

 

 

-

 

 

 

377

 

Total identifiable assets

 

 

47,830

 

 

 

-

 

 

 

47,830

 

Accounts payable

 

 

(3,175

)

 

 

-

 

 

 

(3,175

)

Accrued expenses

 

 

(904

)

 

 

151

 

 

 

(753

)

Current operating lease liabilities

 

 

(111

)

 

 

-

 

 

 

(111

)

Noncurrent operating lease liabilities

 

 

(266

)

 

 

-

 

 

 

(266

)

Net identifiable assets

 

 

43,374

 

 

 

151

 

 

 

43,525

 

Goodwill

 

 

15,947

 

 

 

-

 

 

 

15,947

 

Total purchase price

 

 

59,321

 

 

 

151

 

 

 

59,472

 

Less: Fair value of earnout

 

 

(2,000

)

 

 

-

 

 

 

(2,000

)

Plus: Net working capital deficit

 

 

282

 

 

 

(151

)

 

 

131

 

Cash purchase price

 

$

57,603

 

 

$

-

 

 

$

57,603